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100% FDI In E-commerce Good For Real Estate

Thursday, March 31, 2016

By Anuj Puri, Chairman & Country Head, JLL India

India is already host to some of the largest global e-commerce players. The announcement that 100% FDI will now be allowed in e-commerce is going to open the floodgates to a host of other players in this segment. The impact that this development will have on Indian real estate will be significant. In the first place, the new players - like their predecessors - will require large office spaces to house their back-end teams. They will naturally direct this requirement to the country's top 7 cities.

The second impact will be on the demand for warehousing and logistics real estate. Unlike the demand for office spaces, this additional requirement will be spread fairly evenly across Indian cities. E-commerce players need to be able to deliver quickly to their customers, and one of the most important clientele segments for them are in the tier 2 and tier 3 cities. We will therefore see a significant step-up in demand for warehousing spaces in and around these cities.

On the flip side, there has been a rider clause attached to the FDI liberalisation on e-commerce. This is that e-commerce players now will be unable to sell below market prices and not more than 25% of sales will happen via one vendor (this proviso does raise a question about the term ‘market price’, given that there is fairly broad accepted range for most products). In any case, this announcement brings brick-and-mortal retailers on a more level playing field, and would help to still the outcry over unfair trade practices to an extent.

Overall, this is positive for the retail industry; more rational behaviour will now prevail in terms of market trade practices, and mounting of losses by most e-commerce companies will be curtailed. Online sales may reduce as deep discounts disappear, although losses will also be capped.

If we look at the West, e-commerce and brick-and-mortar players coexist happily, and this dynamic can definitely reflect on the Indian terrain as well. With e-commerce in India still at the nascent stage, the base being low even now and the growth rate very high, there is enough scope for both e-commerce and brick-and-mortar retail to flourish.

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